Tanaka Opts In, Kicks Off Yankees Budget Conscious Winter Plan

Tanaka’s decision was a linchpin because of the important role he fills in the Yankees’ rotation and the $22 million he gets paid to do it. Because of Hal Steinbrenner’s stated intention to keep player expenditures below the $197 million salary cap threshold, Tanaka’s salary, which is over 10% of that total, is likely to have a constraining effect on the team’s approach this winter. However, that’s not to imply the Yankees are worse off because of the righty’s fondness for the Bronx. With the Yankees already needing to fill at least one, and perhaps even two slots in the rotation, adding a third would have made for a very complicated off season, especially considering the thin pitching market. Now that Tanaka is back in the fold, Brian Cashman can focus his efforts on a much more modest winter plan.

Yankees’ Projected 2018 Active Roster

C

Gary Sanchez

SP1

Luis Severino

C

Austine Romine

SP2

Masahiro Tanaka

1B

Greg Bird

SP3

Sonny Gray

2B

Starlin Castro

SP4

TBD

SS

Didi Greogorius

SP5

Jordan Montgomery

3B

Chase Headley

RP

Aroldis Chapman

UT

Ronald Torreyes

RP2

David Robertson

LF

Brett Gardner

RP3

Chad Green

CF

Aaron Hicks

RP4

Tommy Kahnle

RF

Aaron Judge

RP5

Dellin Betances

OF

Jacoby Ellsbury

RP6

Adam Warren

OF

Clint Frazier

RP7

Chasen Shreve

DH/1B

TBD

The Yankees have two glaring needs and, based on estimates, about $30 million to fill them. The team’s first priority will likely be finding another starter. Retaining CC Sabathia seems like the most obvious course of action, but that depends on the big lefty’s contract demands and the Yankees’ confidence in his ability to remain healthy. Although Sabathia will make considerably less than the $25 million-plus of his previous deal, he may still receive an offer or two in the $15-million range. That would be difficult for the Yankees to match, as it would cut their luxury tax buffer in half. An alternative might be for the Yankees to structure a two-year deal worth $20-22 million, but with a player opt out. This structure would give the Bronx Bombers’ an attractive AAV of $10-11 million, and provide Sabathia with an insurance policy against injury.

If the Yankees are unable to come to terms with Sabathia, chances are they’ll end up fishing in the shallow end of the pitching pool. Free agents like Yu Darvish and Jake Arrieta will likely command salaries well in excess of the Yankees’ budget. Also, neither pitcher is the bona fide ace who would merit breaking the bank. A better approach would be finding a free agent with good value potential, and two stand out from the others: Lance Lynn and Alex Cobb. Because AAV would be the Yankees’ biggest concern at this point, the team might have to tack on an extra year to make up for a lower annual salary, but both Lynn and Cobb are young enough, despite recent injury concerns, to warrant a three- or four-year deal. Of course, if several other teams feel the same way, the bidding could escalate quickly, putting even the best of the second tier outside the Yankees’ price range.

In addition to a starter, the Yankees have an acute need for a versatile, veteran hitter who, preferably, can play some first base. It would also be nice if that package was augmented by a good contact rate to offset the middle of the order’s propensity for striking out. Luckily, for the Bronx Bombers, there is one free agent who checks every box: Carlos Santana.

Santana fits perfectly into the Yankees’ lineup, but what about their cost structure? An AAV of $15 million is probably close to the limit with the roster as constituted, and even at that price, the Yankees would be left with little flexibility to compensate for needs that pop up during the season. Still, Santana should be a priority acquisition, with potential acquisition candidates like Logan Morrison, Melky Cabrera and Danny Valencia being begrudging alternatives as you move down the pay scale.

There are two other scenarios under which the Yankees’ could address their needs without exceeding the luxury tax threshold. The first would be to sign Japanese two-way star Shohei Otani, but a dispute over the posting rules could delay his arrival for a couple of years. Aside from his obvious talent, what would make Otani particularly attractive is the low salary he would sign for because of his status as an international amateur and the fact that posting fees do not count against the luxury tax.

The second way for the Bronx Bombers to add impact players without busting the budget would be by shedding unproductive ones. Jacoby Ellsbury is the most obvious candidate, but he would also be the most difficult to trade. Still, his role in 2018 will probably be limited, and his cost is sunk, so even if the Yankees were forced to eat 75% of his $22 million salary, the savings could be put to good use.

Another candidate for the chopping block is Starlin Castro. Despite a solid 2017 campaign, Castro has consistently been a poor defender and mediocre hitter, which makes his $10 million salary hard to justify, especially with super prospect Gleyber Torres knocking on the door. If another team sees value in Castro, the Yankees should jump at the chance to shed his salary and clear a path for their top prospect.

Chase Headley is another potential source of savings, though if he were traded, it would open a hole at 3B, which might have to be filled at a higher cost (unless the plan was to move Torres to that position). Although Headley might have a few suitors, the Yankees would probably have to eat some of his contract, which would mitigate the benefit. Also, if the Bronx Bombers are targeting Manny Machado for 2019, it wouldn’t make sense to invest too much time or money in the hot corner this winter.

Finally, if the Yankees are desperate to save a few million, they could trade Dellin Betances and his expected $4.5 million salary. Such a trade would have to bring back significant value in addition to providing salary relief, but if the Yankees could fill both columns, it’s a move worth considering. Having said that, if the new manager and pitching staff feel strongly about their ability to fix Betances, the Yankees should proceed with caution before giving up one of the most dominant relievers in the game.

Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2018E

Note: Revenue is based on Forbes calculations and net of revenue sharing and stadium debt service. Payroll is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based.For 2017E, revenue is Forbes 2016 calculation increased by 5% + $30 million in estimated post season revenue, and payroll is based on a proprietary tracking calculation (see above).For 2018E, payroll is set at the $197 million limit and Forbes 2016 calculation increased by 8%.Source: bizofbaseball.com and MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax), Forbes (revenue), proprietary

The Yankees are an emerging team, but they have a few holes that need to be filled. In an ideal world, money would be no object, and Brian Cashman would address the team’s needs with the best players available. However, there are constraints, and because the economic benefit of dipping below the threshold will be substantial, it’s understandable why the Bronx Bombers would want to take advantage of the system. As a frequent critic of the Yankees’ significant financial retrenchment, it’s important to note that the team does not NEED to avail itself of these economic benefits to maintain profitability. Because of escalating revenue, the organization’s percentage of payroll to revenue has steadily dropped and, factoring in post season money, could end up near the bottom of the league for 2017. Still, if there was an off season to be stingy, this is the one. Not only is this year’s free agent class weak, but next year’s promises to be a bumper crop. If the Yankees’ plan is to reset their tax penalty in preparation for a 2018 spending spree, that’s not unreasonable. After all, there is enough wiggle room in the budget to allow for a few targeted acquisitions this winter, and, if Brian Cashman can pull that off, the Yankees’ resurgence should continue uninterrupted.